$ELAL: El Al is a wartime monopoly at 2x EBITDA. Is that a trap? | ASB Partners

Summary

• Adam Buckstein’s core thesis: El Al is a wartime transatlantic monopoly trading at ~2.3x EV/EBITDA that has used three years of windfall profits to delever — “the market is scared out of its mind, but I feel like it’s a very asymmetric setup.” The Israeli flag carrier is underfollowed: only half of the 592M fully diluted shares trade publicly, and the top holders are Israeli insurance companies rather than US hedge funds.
• The downside argument combines more than $2B of available funds, including ~$1.3B of air-traffic-liability float, with significant net cash even if that float normalizes, a fleet that went from 50% to 80% owned, nine aircraft bought off lease since 2025, and an externally valued loyalty/credit-card program worth roughly $700M. Andrew framed the total asset value as roughly $3.5B against an EV of about $2B. Even with jet fuel up 86% last quarter, El Al generated substantial free cash flow; its last clean year, 2023, produced $100–200M of FCF.
• Buckstein argues Ben Gurion’s supply side has been transformed, though he underwrites eventual full competition: Turkish Airlines and Pegasus — both top-five carriers — “totally left the market,” while Ryanair lost its cheaper Terminal 1 slots. Andrew estimated El Al took roughly 50% of Tel Aviv’s slots and compared the setup to New York’s constrained airports; Buckstein endorsed the broader slot dynamic, not necessarily every figure. “Airlines are like marginal cost with wings” — and the marginal-cost competitors left.
• Andrew’s pushbacks are the meat of the episode: post-Ukraine steel names also delevered on supernormal profits and “none of the stocks really worked”; El Al’s cash includes customer float that could unwind in a crisis; and he worried that the state could require El Al to fly during emergencies while also fining it for wartime pricing. Buckstein’s answer: Israel provided loans but did not bail El Al out during COVID, the government insured planes when commercial insurers stepped out, and a security cost-sharing renegotiation showed a more collaborative relationship. The $40M pricing fine remains a risk.
• A genuinely novel valuation question from Andrew: El Al does not fly the Sabbath or major holidays — roughly 12–15% of the year — so it pays for aircraft that are idle while competing with carriers operating seven days a week. Buckstein conceded that EBITDA could be haircut by 15%, while Andrew noted the restriction may also support premium pricing and create a niche moat.
• On Stride (LRN): CEO James Rhyu’s abrupt July 30 departure — after growing EPS from under $1 to above $8 and the stock more than tenfolding under his watch — sold the stock off violently, but Buckstein said he could have imagined the stock rising on the news. The board had plausible reasons to act: a troubled Canvas LMS migration that contributed to a guidance miss and the loss of a 6,000-student Texas school. Andrew’s former-employee calls were negative on Rhyu, and the new 71-year-old CEO’s contract discusses a possible sale.
• Stride’s fulcrum is fall enrollment, reported around late October: “that’s going to be the print that’s going to send the stock up 20 points or down 20 points.” Buckstein remains bullish: Pearson’s virtual-schools division was “ebullient,” while Stride’s CFO said funding was favorable and applications were slightly behind last year but still strong, with encouraging conversion. On AI, Buckstein argued that the credentialing, teachers, curriculum, physical materials, and disability/IEP obligations make the business too messy for AI simply to replace; Andrew said Alpha School’s results may not generalize from selective private-school students to Stride’s broader population. A possible take-private was described as more likely than average, with rough bounds above 5% and below 75%, but not as part of the core thesis.

Deep dive

1. An underfollowed wartime monopoly at 2.3x EBITDA

• Buckstein’s setup: El Al, the Israeli flag carrier founded in 1948 and privatized over the last 20 years, has been in a “basically monopoly position” in transatlantic flights since October 7, 2023. Multiple wars have disrupted Ben Gurion, including a missile strike last year; European carriers have come and gone while El Al has consistently flown. Three years of windfall profits have delevered the balance sheet, leaving the company overcapitalized and returning capital.
• Why he thinks it is mispriced: only half the company is publicly traded after a mid-COVID recapitalization in which a US investor bought shares and warrants; the warrants are now fully converted, leaving 592M fully diluted shares. The register has essentially no US hedge funds and is dominated by Israeli insurers. El Al trades at roughly 2.3x EV/EBITDA and generated substantial free cash flow despite jet fuel rising 86% last quarter.
• Buckstein does not romanticize the industry, quoting former American Airlines CEO Bob Crandall: “This is a rotten, nasty business.” His thesis is that El Al is a durable asset with an unusually asymmetric setup, “the type of thing that’s going to be around 30 years from now.”

2. Andrew’s over-earning pushback — the steel-stock trap

• Andrew’s central challenge comes from post-Ukraine commodity names: energy and steel companies also moved from roughly 2x leverage to net cash on wartime profits, and “none of the stocks really worked” once profits normalized; US Steel mainly worked because it was acquired. He also warned that much of El Al’s liquidity is customer prepayment float, which could unwind if COVID, a wider war, or canceled flights caused customers to demand refunds.
• Buckstein’s response: El Al has more than $2B of available funds, about $1.3B of which is air-traffic liability — “an interest-free loan from their customers.” Even assuming that liability normalizes, he says the company retains significant net cash. He also points to real asset ownership: a roughly $35M year-over-year swing in Q2 net finance income, nine aircraft bought out of leases since 2025, and fleet ownership rising from 50% two years ago to 80%.
• On mean reversion, he anchors to 2023, the last clean year between COVID and October 7. El Al generated $100–200M of free cash flow after CapEx, leases, and loan amortization. Even if that is the normalized case, Buckstein sees roughly a $2B EV against at least $150–200M of FCF. He thinks that may be conservative because most of the added capacity is permanent, although some comes from temporary wet leases.

3. Supply left, demand locked in: the New York slot analogy

• Buckstein says Turkish Airlines and Pegasus, both top-five Ben Gurion carriers, “totally left the market,” while Ryanair CEO Michael O’Leary has said he will not return even after the missiles stop flying because Ryanair lost its cheaper Terminal 1 slots. Buckstein expects Ryanair eventually to return, but argues the market is currently transformed. El Al has also won customer trust because it is the only carrier that has consistently operated, creating loyalty-program attachment and demand for certainty.
• Andrew compared the setup to New York’s constrained airports: limited slots, substantial international demand, and El Al taking what he estimated as roughly 50% of the Tel Aviv slots. He suggested competitors cannot easily add capacity without a new terminal or similar expansion; Buckstein called that the right way to view the market, while acknowledging that Delta and United will eventually return.
• The underwriting discipline is full competition someday, “full stop.” Delta and United were expected to return gradually in Q4, but Buckstein emphasized that wars often last longer than expected. In the meantime, he sees at least two more quarters of “gushing windfall profits” that further reduce enterprise value.

4. State of Israel: partner or worst-of-both-worlds regulator?

• Andrew raised the concern that, as he understood the operating agreement, Israel can require El Al to fly and staff flights during extreme emergencies; he cited April, when government safety restrictions forced the airline to operate at sharply reduced capacity. He also mentioned a golden-share structure that can give the state blocking rights over mergers, without establishing the precise scope of that right for El Al.
• Against that, Andrew noted a $40M competition-authority fine for excessive and unfair pricing from October 2023 through May 2024. His worry was a worst-of-both-worlds outcome: El Al must maintain capacity during a demand collapse but gets penalized when wartime scarcity produces unusually high pricing.
• Buckstein said investors have to get comfortable with the foreign-government risk, but argued Israel is relatively capitalistic and respects property rights. During COVID, the government provided loans but did not bail out El Al while it was losing tens of millions of dollars per month. He also said the $40M fine is serious but part of a Western legal process rather than a “kangaroo court.”
• El Al’s mandated security is expensive: personnel in local and foreign markets question passengers, sometimes with deliberately disorienting questions, to screen for terrorism. Buckstein said a security cost-sharing agreement was renegotiated last year so the government now shares that burden. When commercial insurers withdrew, the government also insured the aircraft. He views the relationship as more partnership than hostility.

5. Comps, and the Sabbath depreciation question nobody models

• Andrew cited United, Delta, and JetBlue at roughly 5–6x EBITDA. Buckstein said El Al’s owned-fleet percentage should support a higher multiple in an environment where leasing is expensive, and that the stronger balance sheet also matters. Despite geopolitical risk, he thinks El Al deserves at least to trade in line with peers.
• Andrew questioned whether large US airlines are the right comparables because their loyalty and credit-card economics are much larger. He pointed instead to Jet2, which owns aircraft, receives substantial float, and trades cheaply relative to fleet value. Buckstein said Wizz Air probably should have been included, though he has not studied the other airlines deeply.
• Andrew’s distinctive question was whether El Al’s EBITDA should be haircut because the airline does not fly on the Sabbath or major holidays — roughly 12–15% of the year — while aircraft are purchased in a market where other carriers operate seven days a week. Buckstein conceded that one could cut EBITDA by 15%, but returned to 2023 profitability and said he cannot envision El Al being unprofitable in its market.
• Andrew said the economics cut both ways: he would guess Israeli travelers pay a premium, and the six-day operating schedule may create a niche moat because competitors such as Delta are designed around seven-day utilization. Buckstein agreed that it is a very unusual setup.

6. Stride update: the CEO exit and the late-October fulcrum

• CEO James Rhyu, who had been at Stride for 13 years and CEO for five or six, departed abruptly on July 30 before the August 4 earnings release. EPS had risen from below $1 to above $8 during his tenure, and the stock had increased more than tenfold. The stock sold off violently because investors suspected he had been fired ahead of a weak school year.
• Buckstein identified two plausible reasons for a board intervention: the Canvas learning-management-system migration was “a disaster,” contributed to a guidance miss, and occurred under Rhyu’s watch; Stride also lost a 6,000-student Texas school, Lonsdale Academy, from a roughly 240,000-student base. Andrew said former employees he contacted were generally not fans of Rhyu and viewed a CFO-turned-CEO as a poor fit for a relationships- and education-driven business.
• The new CEO is 71 and has education-industry experience, unlike Rhyu. Andrew noted that the new CEO’s contract spends substantial time on what would happen if Stride were sold. Buckstein called the incoming CEO impressive and said he could have imagined the stock rising on the announcement.
• The fulcrum is fall enrollment, reported around late October: “that’s going to be the print that’s going to send the stock up 20 points or down 20 points.” Pearson’s virtual-schools division was “ebullient,” and Stride’s CFO said the funding environment was favorable; applications were perhaps slightly behind last year but still strong, with encouraging conversion rates.
• Buckstein argues that the apparent student decline is partly self-inflicted: LMS problems led Stride to throttle in-year enrollment, so the next year starts from a lower base. He remains confident that a large percentage of the Texas students can move into Stride’s other schools. Stride also received permission to open K–2 in Texas, filling a gap left by the lost school; a similar re-enrollment dynamic occurred in New Mexico the prior year. The Street was modeling roughly 2.5% revenue growth and barely growing enrollment.

7. AI fears, school choice, and the take-private handicap

• During the broader SaaS sell-off, investors raised AI concerns about Stride; separately, Stride’s new K–12 teacher offering caused the stock to fall by roughly 5–10 points. Buckstein argued that anyone expecting AI to replace the business has not understood its complexity: Stride is effectively a brick-and-mortar public school delivered online, with teachers, physical textbooks, laptops, credentialing, state- and district-specific curricula across 12 grades, unions, and obligations to students with disabilities and individualized education plans.
• Andrew added the Alpha School caveat: he had seen claims that AI works well when a private school can screen for gifted students whose parents can pay $50,000 per year. He said those results may not translate to public schools, and believed Alpha’s attempts to take the model into public schools had produced poor results. Stride serves students with more difficult and varied circumstances while remaining open to everyone.
• The broader thesis is school choice: only roughly 1–2% of students currently use full-time, tuition-free virtual public schooling, Stride operates in 30 states and close to 100 schools, and its overlapping school footprint lets it re-enroll students if one school is lost. Andrew argued that post-COVID, political risk has fallen because virtual schooling shifted from a nice-to-have to a must-have in a future-pandemic scenario.
• Canvas is Stride’s LMS and is owned by Instructure, which is owned by KKR. The discussion floated a possible reset year and the possibility of insourcing LMS costs, but did not make that or a sale part of the core thesis. On whether Stride would remain public in 18–24 months, the discussion characterized a take-private as more likely than for the average public company and gave rough bounds above 5% and below 75%.